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New rules to raise housing standards present challenges and opportunities for HMO landlords and local authorities

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England’s private rented sector comprises 4.4 million households around half a million of these are houses in multiple occupation (HMOs) including buildings split into separate bedsits and shared flats. In the first of three articles on local authority licensing, Idox’s James Carson looks at forthcoming changes to licensing regulations for houses in multiple occupation and the inevitable rise in the number of applications submitted to councils.

In June 2015, local authority housing enforcement officers in the London Borough of Newham discovered that a home intended to house a family of seven, was actually accommodating 26 people. The Newham property may have been an extreme example, but rising concerns about conditions in houses in multiple occupation (HMOs) have prompted changes in the law that will take effect in 2017.

These changes will increase the number of HMOs subject to mandatory licensing, greatly adding to the number of licence applications received by local housing authorities. At the same time, housing enforcement officers are likely to see a rise in the number of properties requiring inspection, as well as a growing number of prosecutions for badly-managed HMOs.

Licensing HMOs: from past and present

The severe housing shortage in London means that the capital contains a high number of HMOs in boroughs such as Hillingdon and Southwark. But official figures show that in fact these types of property are spread widely across the country. Cities such as Sheffield, Nottingham and Newcastle-upon-Tyne contain more than 1,000 HMOs each, while Leeds has more than 4,000.

The Housing Act 2004 introduced a new definition of a HMO, and in 2006, a licensing scheme for controlling HMOs in England and Wales came into effect (a similar scheme has been in place since 2000 in Scotland). The scheme requires landlords managing HMOs with three or more storeys, and occupied by five or more persons forming more than one household (currently around 60,000 properties), to be licensed by the local housing authority in order to continue renting them out. A licence confirms that the property is safe and has suitable amenities, such as adequate bathroom and kitchen facilities.

Since the licensing scheme became law, the private rented sector has grown, and with it, concerns about poor standards in smaller properties. Investigations by local councils, such as Newham, have uncovered unlicensed properties that are dangerously overcrowded, with squalid conditions. In one instance, a room was so small it had to be entered on all fours.

In response, the Government has announced plans to extend the scope of the HMO licensing scheme, and to introduce mandatory minimum sizes for bedrooms. The proposed changes (applicable only in England) mean that:

All houses, regardless of how many floors, with five or more people from two or more households will require HMO licences.

The licensing scheme will be extended to include flats above and below business premises, regardless of the number of floors.

Rooms let for sleeping in a licensed HMO must be larger than 6.52m2 for a single room and 10.23m2 for a double room.

The changing face of HMOs

Announcing the changes, housing minister Gavin Barwell declared that the measures will give councils the powers they need to tackle poor-quality rental homes in their area. “By driving out rogue landlords that flout the rules of business, we are raising standards and giving tenants the protection they need” said Barwell

However, behind the horror stories about rogue landlords and squalid conditions, a quiet revolution is changing the HMO landscape. In 2016, a report from the Shawbrook retail and commercial bank described new trends in the marketplace:

“While historically HMOs have perhaps been seen as a "lower end" accommodation type run by landlords of "questionable" character, there is now a need for a vastly different type of HMO. There is a large volume of professionals now seeking this form of accommodation for financial and social reasons which has been extremely positive for the market. It is pushing landlords to put more thought and effort into their developments, and is making this type of accommodation a more mainstream form of investment and housing.”

The report suggested that a perfect storm of social and financial factors has driven a greater demand for HMO living arrangements: young people are staying single for longer; home ownership is becoming prohibitively expensive; and the cost of renting is going up. And all of this is taking place against the background of a serious shortage of affordable housing.

At the same time, an increase in the numbers of landlords is generating more competition, giving HMO landlords a greater incentive to raise property standards. The Shawbrook report forecast substantial investment in the HMO market over the next year:

“With the supply/demand challenges across the UK housing landscape and the resulting importance of the private rented sector, HMO property is and will remain an essential and affordable source.”

This increase in activity in the HMO market, coupled with the changes to legislation has important implications for local authorities, heralding a significant increase in licensing applications being submitted to councils.

Meeting the challenge of change

The HMO licensing changes are expected to come into force later this year, and the Government has estimated they will bring an additional 141,000 properties into licensing. Landlords of properties where the new rules apply will face penalties for non-compliance, including criminal prosecutions and rent repayment orders. Previous cases suggest that these may be sizeable: in December 2016, three Birmingham landlords were ordered to pay £8,000 for failing to obtain HMO licences.

For landlords, the licensing changes will further complicate an already complex field of property management. Local authorities administer the national licensing scheme, but each council has its own pricing criteria. Some councils set licence fees according to the number of bedrooms in a property, while others charge per property, or according to the number of tenants. Councils may also have their own voluntary licensing scheme, which may offer discounts to landlords applying for licences under the mandatory scheme. But there are also variations on discounts, with some councils cutting licensing charges for early payment. On the other hand, landlords may incur surcharges if application forms are completed late, or inaccurately. Sheffield City Council, for example, imposes a £150 fee for late applications to reflect the additional work involved in identifying and dealing with these properties.

For tenants, the new HMO licensing rules will help improve housing conditions, while legitimate landlords will welcome the prospect of a level playing field. However, for local authorities, the changes present challenges and opportunities. While they will provide councils with a better understanding of HMO stock in their local area and the ability to demonstrate a commitment to high standards in housing, the new rules will also see an escalation in applications for licences, and will place further demands on authorities to ensure that all HMO landlords are complying.

Considering the expected impact and outcomes of the HMO licensing changes, Idox’s iApply solution offers a simple and convenient way to submit and process licensing applications. The service offers a fully digitised process and is the only national platform designed specifically to offer a single point of access for all local government online applications – helping to drive efficiencies, improve interaction, and enhance the customer journey. For further information, visit www.iapply.co.uk

The second article in this series will report on the impact of licensing on the UK’s live music sector.

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